Indirect cost changes under OMB Uniform Guidance

The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, which is effective for new grants, issued after December 26, 2014, included changes to how indirect costs are awarded. Beginning in section 2 CFR 200.412, the requirements include a discussion of both direct and indirect costs, but the most significant changes in these sections relate to the specific requirements surrounding indirect costs.

For recipients of federal awards that currently have a negotiated indirect cost rate, there is now a requirement that all federal awarding agencies accept this negotiated rate unless otherwise required by federal statute or regulation or when approved based on documented justification. The basis for justification for exceptions is outlined in section 200.414 (c)(3) of the Uniform Guidance. These changes to the indirect costs allowed to be charged to federal awards may have a significant impact on organizations receiving awards.

Entities that currently have a negotiated rate may apply for a one-time extension of that rate for a period of up to four years. The cognizant agency for indirect costs will review the extension request. If granted, another rate review cannot be requested until the extension period ends. At the end of the extension period, the non-federal entity will need to reapply for a new rate.

In an effort to relieve administrative burden, Office of Management and Budget (OMB) specified that non-federal entities that have never received a negotiated indirect cost rate may elect to charge a de minimis rate of 10 percent of modified total direct costs, which may be used indefinitely. If the award recipient chooses to utilize the de minimis rate, it must do so consistently for all federal awards until such time they choose to negotiate a rate.

Pass through entities are also required to honor the rates that subrecipients have negotiated with federal agencies. These requirements are included in the subrecipient monitoring and management section of the uniform guidance, section 2 CFR 200.331(a)(4). If no such rate exists, the pass through entity is required to include a rate that they negotiated with the subrecipient, or the de minimis rate of 10 percent.

Grant award budgets may change as a result of the application of these rules. If you’ve never had a negotiated rate, you may want to analyze the impact of the 10 percent de minimis application to determine if rate negotiation would be more favorable to your organization.

All recipients of federal awards should familiarize themselves with the changes in the Uniform Guidance. Baker Tilly created a webpage dedicated to resources to help you with your implementation, including links to federal register and frequently asked questions documents, recordings of our webinars, and tools to aid your implementation.

View additional OMB Uniform Guidance resources >

For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our team.